Saturday, November 04, 2006

Russia raises gas prices against Georgia

After Georgia made accusations that Russia was guilty of espionage, the former superpower started imposing severe trade restrictions on its neighbor: including bans on wine, mineral water, fruit and vegetables and means of transportation. Now, Russia, through its state-controlled company, Gazprom, has announced it will more than double the price of gas to Georgia beginning in January.

The price of gas will increase from 110 USD per 1,000 cubic meters of gas to 230 USD – a price comparable to that charged the more wealthier nations in Europe – a virtual end to its subsidization of gas prices for its impoverished neighbors. However, other countries, like the Ukraine and Armenia, have recently made much more favorable deals with Russia ($135 and $110, respectively).

Georgian-Russian relations have deteriorated since the 2004 election of Mikheil Saakashvili, a person eager to align Georgia with Europe and NATO and who aims to regain control over two separatist regions that are supported by Russia. Meanwhile, Georgia is looking at other potential sources for its 1.5 billion – 1.8 billion cubic meters of gas that its country needs annually, including Iran and Turkey. Additionally, senior EU officials will meet soon in order to discuss the Georgia-Russia conflict and the larger energy related issues the EU is currently facing.

Question:

- Should a political compromise be made in order to limit the negative impact on the Georgian economy and development that will likely result from this change in Russia’s gas policy?

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